Sharps Pixley 2012 Precious Metals Forecast
GOLD Hi : $2100 Lo : $1590 Average : $1765
Black swan events are by nature high-impact, hard to predict and
beyond the realm of expectations. By that reckoning financial
markets are awash with them and forecasting for gold in this
environment is treacherous. Never has forecasting been so difficult
- gold's fortunes are primarily linked to those of the dollar and
the Euro and by extension to decisions made by politicians.
Fundamentally gold remains a good bet - the market is supply
constrained and demand in Asia remains robust. As such gold has a
strong underpinning. However the 'economic premium' in the gold
price may remain volatile, reflecting increased uncertainty and
heightened anxiety during H1. On the negative side a firmer dollar
(in election year) could provide a drag on runaway prices.
In his book "Black Swan Events" Nassim Taleb argues against trying
to predict the largely unpredictable and recommends building
"robustness" into your portfolio. In that regard - gold should
continue to benefit from solid investment demand as the difficult
economic themes of the last few year darken in H1 before brightening
in H2. We forecast an average gold price of $1765.
SILVER Hi : $50.00 Lo : $20.00 Average : $37.35
As with gold, we expect heightened price volatility for silver in
2012 - but more so, with investors seeing silver as a leveraged play
on gold. This in part reflects heightened political and economic
uncertainty which plays havoc with the commodities markets. We
expect to see silver holding robust interest amongst the speculator
community and gaining in respect amongst the investor community with
a tightening market justifying prices well above the $20 level.
However, slower global industrial output coupled with a firm US
dollar in H1 2012 should provide a drag on runaway silver prices -
although we see the possibility of a brief price spike based around
difficult geopolitical concerns. Should economic conditions prove
less difficult than feared in H2, then there are grounds for saying
that silver could benefit as a recovery stock of sorts based upon
its good industrial applications. So for silver its a case of heads
or tails / we win really.
PLATINUM Hi : $2120 Lo : $1400 Average : $1822
Since 1970 platinum typically commands a 30% premium over gold -
currently platinum is trading at a significant discount reflecting
weak global industrial output and modest investor interest -
meanwhile the supply pipe line remains thin and with speculator
interest on the lows, a short covering rally is a distinct
possibility. In short, we believe platinum prices are depressed and
reflect an expectation of ongoing and deepening economic stagnation
- this explains why it is not trading at well over the $2000 level.
That said, we see the possibility of significant platinum price
gains on South African production shortfalls, on improving investor
sentiment and on re-building of physical platinum stocks amongst
industrial clients - in advance of a recovery on the economy in late
2012. Unfashionable though it is to say so, we see scope for
brighter economic prospects during late H2 2012 and we see platinum
and palladium as some of the strongest performing commodities for
the year.
PALLADIUM Hi : $1050 Lo : $600 Average : $846
We think 2012 will be the year that palladium shines once again.
Yes, global industrial output is likely to remain weak and yes the
US Dollar Index has scope to firm from record lows in 2011 as the US
is the first economy to start to emerge convincingly from the mire
(with dollar strength conferring a dampener on commodity prices).
Notwithstanding those caveats, we think that palladium will be
supply constrained in 2012 as Russian stocks finally draw to a close
which prompts industrial clients to build stocks. This we believe,
will rekindle good investor and speculator interest. In short,
despite poor demand fundamentals we believe palladium will rally in
2012 and be one of the top performing commodities of the year.
Ross Norman
Sharps Pixley, London
www.sharpspixley.com